TEIGNBRIDGE Council has agreed to invest £200,000 to provide rented and shared ownership homes at the old Newton Abbot Hospital site in East Street.
Councillors approved to spend the cash needed to make up the shortfall of the development at a special meeting on Tuesday.
The development, at the former Newton Abbot Hospital site, included a proposal for 50 extra care housing units.
These homes would increase the choice of housing and care options for older people.
To deliver the extra care scheme and enable 36 of the flats to be social rented and eight shared ownership requires the public subsidy. Six remaining homes will be on the open market.
At the meeting Cllr Stuart Barker said he supported the spend on the development. "The growing needs of older people is well documented," he said.
"The intention is for the project to include a dementia unit and have 10 units for people with dementia."
He said one of the main plusses of the site is there will be round-the-clock care for residents.
Cllr Alan Connett asked whether the homes would go to Teignbridge residents, and Cllr Barker said the shared ownership houses would go to people in the district.
The money will come from the Infrastructure Investment Fund which is designed to support projects which deliver jobs and homes.
The total cost of the extra care scheme is £8million and needs £1.8million of public subsidy, of which £1.3million will come from the county council and £300,000 from Teignbridge's Affordable Housing Capital Programme, leaving the shortfall of £200,000.